Blog Home  Bookmark and Share

Recently in Taxation Category

Who are the "squeezed middle"?

| No TrackBacks

In view of current interest in the "squeezed middle" ahead of  the 2018 budget, it has been enlightening to identify this group using taxable income statistics generated by Revenue and published by the CSO.

Based on 2015 data, there were 2.3 million tax cases including jointly assessed married couples and civil partners. They had an average taxable income of €36,800  per annum before deducting normal tax credits.

Because some very high incomes shewed this average, a much lower income of €25,700 corresponded to the true middle where half of all tax cases earned less than this value and half earned more.

Going deeper, if tax cases are divided into three equal ranges, corresponding to lower, middle and higher incomes, the middle range in 2015 was €15,600 to €36,000 per annum. Alternatively, if the cases are divided into five equal ranges each comprising 20 percent of cases, the middle range narrowed to between €20,000 and €31,200 per annum.

This analysis suggests that, even allowing for wage inflation since end 2015, most  middle-income tax cases are well below the current €33,800 threshold for the higher 40 percent tax rate.

On this basis a budget increase in this threshold wouldn't benefit most middle-income cases unless the definition of "squeezed middle" is interpreted to also include upper-middle cases with annual incomes ranging from €31,200 up to €52,500.

Letter published in the Irish Times on 7th October 2017.

Lies, Lies and Statistics

| No TrackBacks

Respondents to the Ipsos MRBI poll (30th November) suggested that a person would need to have an income of €153,000 a year to be in the top 10 percent of the population whereas graphics in your paper suggested that, based on Revenue data, the correct figure is €75,000. 

You are both wrong as the Revenue statistics relate to tax cases which treat dual-income married couples as single cases. If we assume that incomes in these cases are split 66/34 then only about 6 percent of the population have incomes in excess of €75,000. Incidently, on the same basis, almost 16 percent have incomes below €10,000 a year.

In responding to the question as to whether welfare recipients, public servants or politicians receive most from the public purse, respondents guessed politicians whereas your graphics indicate that the correct answer is welfare recipients at €20 billion as compared with only €102 million for politicians. On a per capita basis, the respondents were absolutely correct.

Letter published in the Irish Times on 3rd December 2913.

Budget 2014 - Sharing the Pain?

| No TrackBacks

The budget indicated that national debt/GDP will remain north of an unsustainable hundred per cent for the foreseeable future. As a consequence, about half of all income tax will be used, possibly for rest of this decade, to meet interest charges on this debt notwithstanding an imminent exit from the bailout.

Against this background, there was no indication in the budget that any new sacrifices are being made by one of the best paid and pensioned cabinets in the world or by their overpaid advisers, senior public servants and wealthy supporters. Where are the moderate salaries, reasonable pensions and equitable taxation that might be reasonably expected as part of an austerity programme which, after several years, continues to be inflicted by the few on the majority?

Letter published in the Irish Times on 21st October 2013.

Budget 2014 - Income Tax Rates

| No TrackBacks

The IMF's latest Fiscal Monitor Report (10th October) has implied that Ireland's top marginal tax rate (55 per cent) could be raised to almost 70 per cent while still maximising the potential return for the exchequer. This appears to blow a hole in the argument constantly being made by some lobby groups for lower taxes for high earners.

The real problem in Ireland is that top rates kick in at extraordinarily low income levels, This should be addressed without increasing the overall tax take and, if the IMF is correct, without encountering the law of diminishing returns by raising marginal rates for high earners.

Giving more discretionary income to mid-income tax payers would be far more beneficial to national morale and the domestic economy than lowering marginal tax rates for very high earners who, as it stands, benefit from much more moderate effective tax rates on the totality of their incomes.

Letter published in the Irish Times on 12th October 2013.

Untaxing Exiles

| No TrackBacks

Proposals for extra tax breaks for tax exiles must rank as the leading contender for this year's silly season story. 

A Government-backed Forum on Philanthropy has suggested that 400 Irish tax exiles might invest €15 million each over ten years in return for being able to live in Ireland for six months in every year while simultaneously claiming to be tax exiles and paying minimal tax elsewhere.

This aspiration is a bit rich given that only a handful of wealthy exiles have bothered to pay the recently introduced domicile levy based on their worldwide income and wealth. In my naivety, I had always assumed that philanthropy was linked to donating rather than tax breaks.

Instead of loosening requirements and becoming a tax haven for rich exiles, Irish tax rules should lean towards US laws where exile means absolute rather than part-time exile.  The proposed PAYC (Pay-As-You-Choose) should be replaced by PAYE on worldwide incomes, or face forfeiture of all rights to citizenship, residence and even occasional visits.

Letter published in the Sunday Business Post on 28th July 2013.

Pension Fund Theft?

| No TrackBacks

There is nothing extraordinary about the proposed Cypriot levy on apparently untouchable deposits. The Irish Government led the way by imposing a 0.6 percent annual levy on similarly untouchable private pension funds. It expects to gather €1.8 billion from this underhand action which provoked minimal opposition or protests unlike developments in Cyprus.

Of course, no similar penalty applied to public sector pensions amidst recent ministerial claims that constitutional property rights preclude the slashing of outrageous pensions being paid to former politicians, mandarins and bankers.

Lead letter published in the Irish Times on 21st March 2013. This follow up letter was published on 27th March 2013.

William J XXX (26th March) stated that I was factually incorrect when quoting me as saying  (21st March) that "no penalty applied to public sector pensions". I actually wrote "no similar penalty" in the context of the Government's raid on private sector pension funds. This is factually correct. 

He goes on to write about public sector pensions being  dependent on employee contributions but ignores the fact that these pensions, particularly at higher levels, are largely financed by private sector taxpayers who could never aspire to secure such attractive pension benefits for themselves.

Exiting the Bailout?

| No TrackBacks

Notwithstanding years of austerity, Ireland still has some of the most over-borrowed public and private sectors in the developed world and, according to Christine Legarde (IMF managing director), has only completed two-thirds of the current bailout programme. Against this backdrop. there is no way that Ireland will be able to break free from the troika for years to come.

Over the next year or so, we might have to contend with Croke Park chaos, dissent over the property tax, another savage budget just as people are seeing how sneaky the last one was, slow economic growth, large street protests, further Dail defections, local election upsets, foreclosures/evictions, further bank restructuring, surging emigration and other unexpected nasties.

They will all feed into the next Dail elections which could well result in a trouncing of the governing parties and the formation of a very weak, rainbow government. In the absence of strong and decisive national leadership, the troika is likely to demand a continuing supervisory role notwithstanding that its motives and agenda would not be in our national interest.

Letter published in the Sunday Business Post on 17th March 2013.

Budget for 2013

| No TrackBacks

Tables compiled by the Dept of Finance showing the impact of the budget on various incomes say it all. Here is an extract for a married couple with a house, without children and paying full PRSI:

  • On a gross income of €45,000, the reduction in income will be €422 a year (1.2% of gross).

  • On a gross income of €175,000, the reduction in income will be €872 a year (0.9% of gross)

So, for someone earning four times more, the impact of the budget is only doubled. Inequity is even greater for people further down the income scale. How can this budget be viewed as fair?

Letter published in the Irish Times on 7th December 2012.

Why Pay Taxes and Debts?

| No TrackBacks

Would some kind reader explain why I shouldn't follow the example of the so called 'good and great' and avoid paying my debts and taxes by hiding my wealth, falsifying documentation or emigrating to a tax or bankruptcy haven?

Letter published in the Sunday Business Post on 17th June 2012.

Budget for 2012

| No TrackBacks

Given that the Minister for Finance has claimed on numerous occasions that all the low hanging fruit has been picked, why doesn't he start plucking some of the ripe, plump fruit off the highest branches? He could also give the tree a good shake and make substantial saving by cutting off dead branches and pruning back at all levels.

For example, he could introduce a third tax band for salaries above €100,000, apply a salary limit of €150,000 across the entire public sector and limit pensions in the sector to half that. Such measures would be much fairer than increasing VAT, introducing new stealth taxes and cutting key services and capital expenditure. Given that the country is effectively bankrupt, force majeure should take precedence over legitimate expectations or entitlements and it makes no sense to increase borrowings and pay additional interest simply to allow those at the top of the tree to over-ripen.

Letter published in the Irish Times on 22nd November 2011. A somewhat similar letter was published in the Sunday Business Post on 13th November 2011.

Household and Property Tax

| No TrackBacks

It is not too late to convert the household charge into a window tax. Using a three-bed semi with eight windows as the benchmark, the rate would be €12.50 per window. This would be more equitable than the proposed flat charge, easy to assess and check and very transparent.

Letter published in the Irish Times on 2nd August 2011.

Revenue Distorts 2011 Tax Analysis

| 2 Comments | No TrackBacks

On 7th December 2010, the Department of Finance published Annexes to the Summary of 2011 Budget Measures in the context of the Budget presented by the Minister for Finance.

This Budget sought to reduce the Exchequer deficit by €6 billion by increasing taxes and cutting public expenditure. The former included reduced tax credits, replacement of health and income levies by a Universal Social Charge (USC) and the extension of PRSI.

The fourth page of Annex C dealing with the USC contained a chart   revenue_chart_2011.pdf and claims that "the overall taxation system remains highly progressive after the introduction of the USC". This chart has been distorted and misleading to justify this claim - look at the income range which is truncated and increases in irregular steps from 10,000 to 200,000. Is it any wonder that a highly progressive tax system is claimed!

Here is our version of this chart 2011_tax_comparison.pdf  which uses a regular scale for incomes up to €1 million in 10k steps. It shows that the tax system is highly progressive for people on low and middle incomes but flat lines for those with very high incomes. This directly contradicts the Government's claims. It also shows that the 2011 Budget changes will have the greatest impact on people with the lowest incomes.

A picture is only worth a thousand words when it doesn't distort the truth. It looks as though by publishing their chart, the Minister for Finance, Department of Finance and Revenue are engaged in deception regarding the progressiveness of the Irish tax system. Either that or they need to go back to school to learn how to draw graphs.

Other recent blog entries relating to the progressiveness of the Irish tax system include:

Property Tax and House Prices

| 2 Comments | No TrackBacks

If the mooted property tax is value-based, how can taxpayers value properties in a volatile market in the absence of reliable data? For example, my home was worth about €900,000 at the peak; is worth €650,000 by reference to local asking prices; is worth €360,000 based on a multiple (15x) of local rent levels; and valued at €175,000 based on a pre-boom multiple of five times current average earnings.

Leaving valuations aside, how collectible is a property tax given that over 4% of mortgages are more than 90 days in arrears, many more mortgages are interest-only, thousands more are receiving mortgage interest supplements and over 300,000 households are moving into negative equity having possibly paid substantial stamp duty on their purchases?

Letter published in the Irish Times on 28th June 2010.

Distribution of Incomes

| No TrackBacks

Oft-quoted official statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers, notwithstanding moves towards individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third. Dual-income married couples are highly significant as their average income, based on published Revenue data, was €70,000 as compared with €27,000 for all other tax cases. They accounted for about 36% of all income and 41% of all income tax notwithstanding that they represented only 17% of tax cases.
 
If the incomes of dual-income married couples are divided in the ratio 65/35 then the overall distribution of incomes is radically altered. By my reckoning *, the number with gross incomes under €40,000 in 2008 would increase from 1.48 million tax cases to 2.25 million earners, a jump of 52%, and the number with gross incomes above €40,000 would decline from 0.89 million tax cases to 0.52 million earners. This redistribution has huge implications for plans to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported.

Letter published in the Sunday Business Post on 3rd January 2010. * See revenue_tax_cases.pdf.

Budget 2010

| No TrackBacks

The 2010 budget was extremely one sided as it excluded general tax increases for the high paid who retain existing after-tax incomes and additionally benefit from deflation. At the other end of the spectrum, social welfare recipients and lower-paid public sector workers are experiencing cuts on account of the same deflation.

Letter published in the Irish Times on 10th December 2009.

It is truly extraordinary that the Minister presented a budget detailing cuts of €4 billion but failed to state that he had recently gifted a similar amount to Anglo Irish Bank for absolutely no return and will probably flush a further €4-6 billion down its plug hole. This is on top of €7 billion provided to the main banks and possibly to be followed by billions more during 2010. Nor did he mention Nama's planned overpayment of €7+ billion for property loans and resultant €54 billion increase in national debt. Talk about ignoring elephants in the room.

Letter published in the Sunday Business Post on 20th December 2009.

Tax Cases vs Earners

| No TrackBacks

Oft quoted statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers notwithstanding an established trend towards tax individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third.

Dual-income married couples are highly significant as their average income, based on Revenue data for 2005, was €70,000 as compared with €27,000 for all other tax cases. They accounted for about 36% of all income and 41% of all income tax notwithstanding that they represented only 17% of tax cases.
 
If the incomes of dual-income married couples are divided in the ratio 65/35 then the overall distribution of incomes is radically altered. By my reckoning, the number with gross incomes under €40,000 in 2008 would increase from 1.48 million tax cases to 2.25 million earners, a jump of 52%, and the number with gross incomes above €40,000 would decline from 0.89 million tax cases to 0.52 million earners.

This redistribution has huge implications for any proposals to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported in Revenue statistics.

My 11-page report with tables and charts can be downloaded at revenue_tax_cases.pdf  

Marginal and Effective Tax Rates

| No TrackBacks

This chart analyses the progressiveness of the Irish income tax system based on 2009 rates. It shows the effective and marginal tax rates (combining income tax, the health and income levies and PRSI) for taxable incomes from zero to €1 million in €10k jumps for 2009. The only credits taken into account related to marital status so the rates depicted at each income level are maximums. Note that the overall rates takes account of the mix of single and married income tax payers at each income step based on Revenue data for 2005 - this wouldn't have changed much since then.

Notable features include:

  • the slope of the red line signifies the progressiveness of the tax system - very progressive up to about €60,000, moderately progressive up to €200,000 and much less progressive thereafter.

  • the rapidity of the increase in overall effective rate from €20k up to €80k. The overall rate tapers off thereafter and effectively flatlines at about €500k.

  • the erratic growth in the overall marginal rate at quite low incomes before it settles down at 52%. The saw tooth jumps are attributable to interactions between the different bands and rates. What the marginal rate graph does NOT show is the way in which marginal rates rise extremely rapidly for singles and one-income married.

  • top marginal rates can be hit very early with a single earning €60,000 paying at 51% in contrast to a dual earning married couple earning €1 million and paying tax at 52%.

  • the huge differences in effective tax rates for singles, married (one income) and married (dual income) particularly at low incomes.

This analysis takes no account of the fact that high earners, by virtue of having discretionary income, can reduce their effective tax rates very substantially by tax planning and availing of tax breaks with the result that people earning between €60,000 to €120,000 (my guesses) could be paying the highest "real" effective rates. I intend to discuss this issue in more detail in a future post.

We will update the chart late next week to take account of the budget for 2010 so bookmark us, subscribe to our RSS feed or follow us on Twitter.

Paying for the Boom

| No TrackBacks

By my reckoning, house builders and landowners made exceptional profits of about €37 billion over the ten years to 2006 as a consequence of inflated house prices. This excludes windfall profits for commercial property and those made by financial institutions, who lent far more than strictly necessary, and other beneficiaries such as brokers, insurance companies, solicitors and auctioneers. Although the Exchequer gained from additional stamp duty and VAT, it also provided tax breaks which were largely unneeded and merely boosted profits.

Having made huge gains and plunged hundreds of thousands of home owners into negative equity, surely it is only fair to look for some payback from the boom's main beneficiaries. Given that the country is confronting a deficit of €20 billion, what would be morally wrong with introducing a special tax to claw back these excessive profits instead of raising taxes, cutting public services and social welfare, and increasing exchequer borrowing?

Letter published in the Sunday Business Post on 29th November 2009.

Window Tax instead of Property Tax?

| No TrackBacks

The 1911 Census required householders to state the number of front-facing windows in their dwellings.

Instead of asking householders to value their houses in a very uncertain market, the proposed property tax could be based on a windows count.

How about a tax of €100 per front-facing window or one-third of total windows which ever is the greater? It would be very easy for Revenue to check this and evasion by bricking up windows should be evident.

A window tax was used in the UK and France in the 19th century as an alternative to income tax and gave rise to the phrase "daylight robbery".

Letter published in Irish Times on 9th September 2009.

Economy & Taxation

| No TrackBacks

Last year the Minister for Finance advanced the 2009 budget by three months as the Government's main response to the emerging economic crisis. He indicated in his budget speech that the economy would decline by less than one per cent and unemployment would average 7.3 per cent in 2009.

If these figures justified an early budget, surely the expected 6+ per cent decline in the economy for 2009 and an actual unemployment rate of 7.7 per cent for last December justify immediate budgetary action rather than a fifteen month gap to the next budget.

Much play has been made by the Government that top earners pay the most tax and that huge numbers don't pay any tax. According to Revenue's Statistical Report for 2007, 661,000 tax cases had gross incomes of less than €15,000 a year and, as might be expected, paid minimal taxes totalling €14 million on gross incomes of €4,744 million.

If, ignoring the social consequences, their effective tax rate of 0.3% could be increased by 10% to 10.3%, an additional €474 million would be raised. At the other end of the spectrum, 81,000 people had gross incomes in excess of €100,000 a year and paid taxes totalling €4,353 million on gross incomes of €16,065 million. If their effective tax rate of 27% increased by the same 10% to 37%, a total of €1,606 million could be raised.

Surely, it is unnecessary to wait for the Commission on Taxation's report to see that, in this time of crisis, tax rates should be increased as soon as possible for those with the highest after-tax incomes.

Letter published in the Irish Times on 4th March 2009.

Proposals on Crisis

| No TrackBacks

The following proposals are aimed at those in leadership positions and the higher paid. While small in number, they are hugely important for setting example, restoring fairness to the tax system and contributing to the national finances and competitiveness.

  1. Salaries, pensions and expenses of ministers, TDs and senators should be reduced by, at least, one-third and instead of being pegged to overblown civil service scales, their salaries should be linked to those of politicians in other states of comparable size and status, and having similar parliamentary sitting days.

  2. Salary scales of senior administers and professionals across the public sector should also be benchmarked against opposite numbers in other comparable countries and linked to the average industrial wage. In the interests of fairness, the proposed pension levy should be restructured as was done for the income levy.

  3. As applies in the US, exceptional salaries in the private sector should be funded by shareholders rather than subsidised by taxpayers. Accordingly, any elements of total salary, bonus and pension contribution exceeding €200,000 should cease to be deductable for corporation tax purposes.

  4. The conditions applicable to non-residency for tax purposes should be reviewed so that non-residency means exactly what it says or tax exiles pay up like every other citizen. For starters, tax should be changed on worldwide incomes of tax exiles pro-rate to days (or part of) spent in the state.

  5. Having been introduced to encourage greater participation in the work force, tax individualisation should be phased out to help distribute scarce jobs across more households. Dual-income households with high mortgages that voluntarily become single-income should get special tax credits or be able to extend the term of their mortgages.

  6. A new tax rate of 48% should be applied to the 60,000 tax payers with incomes above €100,000 a year. The annual yield would be about €800 million, and could be higher if allowances for "top-hat" pensions, investments etc. are reduced. If applied immediately for the next five years, these changes could cover about a quarter of the projected €16 billion shortfall.

Letter published in the Irish Times on 10th February 2009.

Facing Reality

| No TrackBacks

Nothing illustrates the Government's weak-kneed approach to the crisis more clearly than the fact that on the same day that President Obama demanded that US companies receiving bailouts should limit executive salaries to US$500,000, our Taoiseach who earns more than President Obama merely urged top executives in banks covered by tax payers' guarantees to take 25 per cent salary cuts. Arguably, a maximum salary of about €200,000 would be appropriate for Irish bank executives when account is taken of their size relative to their US counterparts

Supplementary Budget

| 1 Comment | No TrackBacks

Here are some suggestions for the Minister for Finance to consider when he is obliged by circumstances to present a supplementary budget early in the new year in response to the disastrous economic downturn which is still gathering momentum.

They should be implemented in the context of a realistic, attainable five-year plan for which the support of the social partners and opposition should be sought. Given that these are unlikely to acquiesce even though they offer no alternatives other than to strut, whine and oppose, the government should, for once, show real leadership and forge ahead on the grounds that there is no alternative and early action is crucial. Most people will accept pain provided it is seen to be fairly distributed and there is hope at the end of the tunnel. The alternative is much higher unemployment, cutbacks, emigration and extreme hardship which will take a decade to unwind.

As those who gained most from the Celtic Tiger should pay the most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the highest incomes. Alternatively, a new higher tax rate should be introduced for those earning more than, say, double the average industrial wage.

Given that payroll costs account for half of all public sector expenditure where salary rates are well ahead of equivalents in the private sector and internationally, the Government should roll back the first benchmarking exercise and plead "inability to pay" other than to the lowest earners under the new national wage agreement. It should only recommence payment of increases once major reforms have been confirmed by An Bord Slash.

Taxpayers can no longer be asked to subside "gold plated" pensions for politicians and public servants when the value of their own pensions (if they have one) is dropping through the floor. The Government should establish a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement. As a stop gap, full PRSI should be applied across the public sector and, in recognition that PRSI is income tax in all but name, earnings limits should be removed for all workers in the private sector.

The foregoing measures will arrest the catastrophic deterioration in public finances and enable the new standard VAT rate of 21.5% to be reduced substantially. This will help the lower paid as well as assisting tourism and curtailing cross-border shopping.

Finally, the Dail should immediately start sitting for four full days every week for at least forty weeks a year. To ensure genuine debate and better decision making, backbenchers should be pressurised by constituents to exercise greater freedom of expression in Dail debates, and voting linked to constituents' needs rather than party loyalties should become the norm rather than the exception.

Lead letter published by Irish Times on 8th December 2008.

Budget Reactions

| No TrackBacks

It is clear that (a) the Mininster has underestimated the looming problems (b) taxpayers were braced to accept some pain provided it was seen as equitably distributed (c) reform of the public sector has become a priority and (d) failure to recapitalise the banking systems will lead to a credit famine.

Here are some suggestions to address these matters:

  1. It is clear that the majority will pay for the excesses of the past few years even though only a small minority were the principal beneficiaries. On the basis that those who gained most should pay most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the very highest incomes and expanded, as a condition of retaining Irish citizenship, to the worldwide incomes of our tax exiles. These changes should raise sufficient revenue to roll back the budget cuts and tax increases impacting on young, old and weak.

  2. Extremely high salaries should be subsidised by shareholders rather than by taxpayers, To this end,  the Finance Bill should disallow any elements of total salary, bonus and pension contribution exceeding, say, 15 times the average industrial wage (c. €600,000) from being tax deductable.

  3. Payroll costs account for about half of all public sector expenditure and salary rates are well ahead of their equivalents in the private sector and abroad. To help reduce costs, restore parity and reduce future borrowings, the Government should plead "inability to pay" other than to the lowest earners under the proposed new national wage agreement.

    It should only agree to recommence payment of increases post-rationalisation and -restructuring as guided by the forthcoming report on the Task Force on Public Service.

  4. The scale of the looming pensions problem is evidenced by the sharp declines in the National Pension Reserve Fund and private sector funds, the poor uptake of pensions by the unpensioned and the surging cost of public sector pensions.

    Taxpayers with low/no pensions should not be required to subside "gold plated" pensions for politicians and public servants. The Government should immediately initiate a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement.

  5. The National Treasury Management Agency should immediately acquire substantial stakes in the quoted Irish banks to recapitalise them as insurances against defaults linked to the State guarantees and in anticipation of their profit declines over the next few years.

    Alternatively, the NPRF should liquidate some of its overseas holdings to acquire these stakes on the grounds that if our banking system fails the funding of pensions for two decades hence becomes academic. Of course, the annual payments of 1% of GNP, financed by borrowings, to the NPRF should be suspended immediately.

Income Levy

| No TrackBacks

The proposed income levy is a crude and inequitable method of raising revenue. Based on Revenue's latest published statistics, 855,000 taxpayers had incomes of less than €20,000 in 2006 and paid income taxes of €198 million on total incomes of €8.5 bn.

On this basis, the income levy of 1% would cost them €85 million. At the other end of the spectrum, 58,000 taxpayers earned over €100,000 and paid taxes of €3,320 million on total incomes of €10.1 bn. Application of the 1-2% levy would cost them €145 million.

This shows that the levy is equivalent to a 43% surcharge on income taxes paid by the lowest paid whereas it amounts to just 4% of income taxes for the highest paid.

If the levy scheme was changed to exclude those earning less then €20,000, the higher rate for the levy might, for example, have to be increased from 2% to 4% to generate the same overall revenue.

This would reduce their average incomes of €175,000 by €4,000 a year, hardly a large sacrifice in these who, by virtue of their high incomes, benefited most from the Celtic Tiger.

Pension Fund Strategies

| No TrackBacks

The National Pension Reserve Fund has lost about €3 billion (15% of value) over the past four quarters as a consequence of the international credit crisis.

In these circumstances, it makes no sense for the Exchequer to continue borrowing about €1.6 billion a year from abroad for the Fund to continue to making risky overseas investments while cutting back on domestic investment and turning to expensive Private-Public Partnerships and massive tax breaks to progress critical national projects.

This nonsense is compounded by the fact that the Fund must achieve a return on its investments in excess of the cost of borrowing "to wash its face". It is noteworthy that the NPRF is one of the few funds in the world not financed by oil and commodity revenue surpluses. Has the government forgotten the rules about never borrowing money to buy shares or investing what you cannot afford?

Surely it makes more sense for borrowings earmarked for the Fund to be redirected immediately to finance much-needed, major infrastructural projects now instead of being used to make overseas investments for pensions payable decades hence. This could be done simply by legislating a "contributions holiday", say, for three-years to free up about €5 billion.

This would enable critical projects to be progressed more quickly and kept in public ownership. For example, the eight co-located hospitals which will cost the taxpayer a fortune and further fragment our two-tier health service could be progressed in public ownership using a fraction of these liberated funds.

By 2025, the NPRF could be valued €80 billion at current prices (€150 billion at 2025 prices). Given that every taxpayer and consumer will have contributed to the Fund, what guarantees can be offered that payments out of the Fund after 2025 will be equitably distributed and not skewed towards increasingly unsustainable, unfunded "gold-plated" pensions for politicians and the public sector at the expense of much more numerous, poorly pensioned citizens in the private sector?

For example, the NPRF has indicated that public service pension costs will reach 3.7% of GDP by mid-century while social welfare pensions for a far larger number of people will only rise to 10.1%. 

As contributors to the Fund, we should be given absolute assurances that future governments will not treat the Fund as a massive "slush fund" to support vested interests as done with decentralisation, benchmarking etc.

Lead letter published in Irish Times on 26th July 2008.

Next National Wage Agreement

| No TrackBacks

Dr X's call for a pay freeze (4th May7 2008) is unlikely to secure much support in the talks on a new national wage agreement on account of our high inflation etc. However, here are three proposals which taken together could enhance national competitiveness, protect living standards, claw back some excesses of the Celtic Tiger, improve equity within society and generate additional funds for the Exchequer:

  1. Wage increases under the next wage agreement should be applied on a sliding scale e.g. 3% p.a. on the first €30,000, 2% on the next thirty and 1% on the balance. As wage increases are mainly intended to compensate for basic cost increases, there is no case for automatically offering the same proportional increases to those already enjoying high incomes. 

  2. Either introduce an additional higher tax rate (say 45%) for those earning over, say, €100,000 or ensure that those on the 41% rate actually pay tax at that rate on their incremental earnings by scaling back allowances for "top-hat" pensions, investments etc. It is anomalous that someone earning €60,000 a year pays tax at 41% while a person earning five times more can pay tax at a much lower effective rate.

  3. Lower the standard VAT rate to, say, 19%. This would reduce the cost of living and help redress the imbalance between low direct taxes (which benefit the better off) and indirect taxes which fall most heavily on the less well off.

Figures are illustrative but basic financial modelling would identify the ideal combination to meet all the aforementioned objectives which, presumably, are reasonable and desirable.

Lead letter published in the Sunday Business Post on 11th May 2008.

Philanthropic tax exiles

| No TrackBacks

Following their recent donations, is there any chance that our philanthropic tax exiles will start donating to the Collector-General instead of using Pay As You Wish to salve their consciences and garner publicity?

Letter published in the Irish Times on 27th March 2008.

Nurses Pay - Symptom of Deeper Problems

| No TrackBacks

The central issue in the nurses dispute is not that they may be paid too little but that other people get too much, too easily.

For example, the Taoiseach and his cabinet are amongst the best paid in the world; unjustifiably high fees are charged by many sheltered professions offering critical services; price gouging is widespread amongst many local private and public services; house prices are set by an unholy alliance of builders and bankers with predictable results; wage inequities have intensified due to continual use of percentage increases under successive national agreements which, in addition, have mainly applied to the public sector; and superfluous tax reliefs have ensured that people who should pay the most tax can actually pay the least.

The net result is that competitiveness has declined alarmingly and consumer price increases are amongst the highest in the world. The remedial action is straightforward - hold back wages and prices.

The starting points could be benchmarking mark two which must roll back the first one and more; the next national wage agreement must deliver absolute rather than percentage increases; the income tax system must be rebalanced to ensure that the higher rate applies to all higher incomes; meaningful powers must be given to regulators and the Competition Authority; and, most critically, the next Government must be willing to play hard ball with vested interests in the national interest. Predictably, none of these actions feature in election promises.

Letter published in the Sunday Business Post on 15th April 2007.

Reducing the Top Tax Rate

| No TrackBacks

Three questions for Budget week:

  1. Why should someone earning €50,000 pay tax at 42% on incremental income while an earner of €250,000 might pay only 20% on all income and personal capital gains? 

  2. Why give investment tax breaks directly to individuals when companies are the natural vehicles for making investments?

  3. Why tinker with tax credits for PAYE workers when those with the highest earnings, and therefore the greatest capacity to pay tax, can avail of massive allowances to escape taxes?

The logical answer is to reduce the current top rate and apply it without exception. A new top rate of, say, 35% on income and personal capital gains could give same return to the Exchequer as the present inequitable regime. If people wish to make investments, let them make them through companies where they can avail of allowances and a tax rate of 12.5 per cent. Done this way, all distributions and gains from companies could then be taxed in the normal way, without further relief, at a reduced top rate.

Surely, the top tax rate should apply equally to all taxpayers.

Lead letter was published in the Irish Times on 5th December 2006.

Tax, Property & Tribunals

| No TrackBacks

A few themes have emerged in recent days.

Firstly, the failure of the Government to address findings of the Oireachas report on private property and land prices as eloquently explained by James Pike (27th June). In effect, the Government has presided over a housing land grab by speculators which has contributed hugely to the surge in house prices and has resulted in an additional debt burden on hundreds of thousands of voters for decades to come. It is not too late for the Government to take concrete action on this before the next election. However, if it only becomes an election promise, nobody will believe it.

Secondly, the axiom that the more people earn the more taxes they pay clearly does not apply to Ireland. Instead, millionaire earners can hide behind Government-inspired tax shelters and avoid tax while Sean Citizen pays the full whack. To add insult to injury, Sean has to compete in the housing market with investors whose purchases are being part-funded by his taxes. From a national viewpoint, this  taxpayer-subsidised property bonanza has enabled many investors to use their tax-relieved gains to leverage massive investments abroad which bring absolutely no benefit back to the nation. Why should someone earning €50,000 pay tax at 42% while an earner of €250,000 might only pay at 20% on income and capital gains? Surely, a top rate of tax should do what it says on the tin. If all personal tax allowances are eliminated, a new top rate of, say, 35% on income and capital might give the same return to the Exchequer as the present inequitable regime. If individuals wish to make investments, let them do it through companies where the tax rate is only 12.5% and let the distributions be taxed at the standard rate.

Thirdly, the tribunals trundle along on a wave of perjury and forgetfulness. In any other civilised country, the full weight of the law would be thrown at these issues and instead of "slaps on the wrist" we'd see guilty people making "perp walks" and enjoying State-funded hospitality. If the authorities lack resources and expertise, they could seek support from the prosecuting teams used in recent high-profile financial trials in the US. Where is the anti-corruption agency promised years ago by the Taoiseach and where is the long overdue legislation to protect whistle blowers? Probably being dusted off as election promises (again).

What is common to these themes is a complete failure of Government to govern fairly. Instead, it has pursued a policy of making the wealthy richer and ignored the fact that, as Fianna Fail backbenchers are belatedly discovering, the rich account for few votes.

Lead letter was published in the Irish Times on 30th June 2006.

Privatisation of Hospitals

| No TrackBacks

Following Susan Mitchells' article (11th June) about plans for eleven co-located private hospitals, it is clear, but not surprising, that the Government has learnt nothing from the ongoing decentalisation debacle. While decentalisation could be disruptive to thousands of public servants and families and to the operation of relocated departments, the roll-out of these private hospitals is potentially far more serious.

At a time when inequitable property tax breaks are being closed off, a new break for hospitals is being ramped up. This will result in the State losing taxes equivalent to 48% of the cost of developments. In addition, it will have to give away prime sites, be obliged to pay full commercial fees to use the facilities and have no ownership or managerial rights notwithstanding having contributed almost half the total capital cost. How can this be remotely described as either progress or value for money? It is patently clear that co-locating private and public hospitals is like trying to mix oil and water. It will give rise to fragmentation, duplication and staffing and operational problems on a huge scale and, most critically, drive an even deeper wedge into our inequitable health service.

Based on your report, many key bodies have reservations or are outrightly opposed to the proposals and the only people in favour seem to be the Tanaiste, consultants, builders and investors.  As the proposals seem to driven by ideology and profit and are being pursued without any popular mandate or genuine debate, the major political parties should pledge to unwind them and the Dail should ensure that no binding commitments are entered into ahead of the next election and a comprehensive review. If, in the meantime, the Minister and HSE have the luxury of surplus resources and energy to pursue these risky and unproven ideas, they should be immediately redeployed to provide more public hospital beds, improve services and develop a more unified health service.

Letter published in the Sunday Business Post on 19th June 2006.

Taxes are for Little People

| No TrackBacks

Following publication this week of reports on tax schemes for property development etc, it is clear that the stable door is being belatedly closed. These reports point to the existence of a "black hole" which must rank alongside benchmarking, decentralisation and infrastructural overruns as clear evidence of imprudent and incompetent management of the State's finances. The reports prompt two basic questions:

  1. Why should someone earning €50,000 pay tax on incremental income at 42% while an earner of €250,000 might pay only 20% on all income and personal capital gains? Surely, a top rate of tax should be exactly that. The current rate should be rebalanced and applied to everyone without exception. A new top rate of, say, 35% on income and personal capital gains could give same return to the Exchequer as the present inequitable regime.

  2. Why give investment tax breaks to individuals? Surely, breaks should be only available (where strictly necessary) to companies via accelerated depreciation, once-off grants and special allowances which, with the low corporate tax rate, would enable investment reserves to be built up virtually tax free. Done this way, all distributions and gains from companies could then be taxed in the normal way, without further relief, at a rebalanced and reduced top rate.

Letter published in the Sunday Business Post on 19th February 2006.

Accounting for Tax Breaks

| No TrackBacks
The announcement (12th October) that €315 million of tax has been forfeited as a result of the holiday homes scheme raises basic questions. Given that this scheme has been operating for almost ten years, why has the tax loss been calculated only now and why was no monitoring done to routinely confirm its relevance and benefits?

The foregoing loss relates to just one scheme. There are dozens of others costing billions every year. For example, tax relief on pensions is one of the few that are assessed and cost €1.9 billion for the short tax year of 2001. In contrast, PAYE allowances, about which there is so much fuss at budget time and which require enormous resources to apply, were just €478 million for the same period.

Are all these tax schemes equitable and necessary and, more to the point, why is their cost largely unknown?  In the absence of this basic information, how can they be sustained? Surely, this "black hole" must rank alongside benchmarking, decentralisation and infrastructural cost overruns as clear evidence of imprudent, or incompetent, management of the State's finances. Aside from the Controller and Auditor General, is anyone counting and does anyone care ?

Providing for Pensions

| No TrackBacks

The Minister's concern about the poor uptake of pensions should be seen in the context that all workers are already contributing over 20% of their income tax to pensions. Unfortunately, it is not always for their own pensions. About half their contributions pay the "gold-plated" pensions of public servants and politicians, and the balance is hoovered up by the National Pension Reserve Fund. This assessment takes no account of tax relief granted to the wealthy self employed to create massive pension funds used for estate planning.

The following suggestions would put fairness into national pension arrangements and help resolve the looming pensions crisis:

  1. The next round of benchmarking should take full account of the cost and value of public sector pensions. This means that staff should be given the option of maintaining current pension rights with salary reductions to cover the full cost of entitlements, or of holding current salary levels and funding their own pensions on a discretionary basis. In addition, the State should progressively introduce self-funded schemes for all its employees.
  2. There should be a cap of, say, a million euro on the value of tax-deductable contributions to a pension fund for any individual.
  3. State organisations with pension deficits, amounting to a billion euro, should be required to sort these out internally and not be baled out by the taxpayer and by raising prices to consumers.
  4. The role of the National Pension Reserve Fund should be clarified as regards the expected distributions between public sector and social welfare pensions. Indeed, a fundamental reassessment of this organisation should be conducted in the context of our surging population and given that invests over a billion euro a year aboard while the State has a deficit in infrastructural funding.
  5. As TDs and Ministers are amongst the best paid and, probably best pensioned, in the world, they should fund their own pensions over and above a basic scheme. The sums involved are not large but there is a principle involved and a lead to be given.

This prescription is likely to be painful but, as everyone knows, it is better to start pension planning earlier rather than later. So, before introducing mandatory pensions, the Government should create an equitable starting point.

Privatising Healthcare

| No TrackBacks

Why is the State offering extraordinary returns to investors in the health sector when it can easily raise the finance at less than 3% per annum? How can the Government justify subsidies of up to 47% by way of tax breaks to investors in hospitals *AND* then, on top of that, having to make annual payments to these investors to cover rents, fees, dividends, interest and profits? It is nonsense for investors to suggest that the State would gain from the resultant PAYE and VAT as it would be getting these if it financed the hospitals in the first instance.

In relation to the proposed replacement of Crumlin children's hospital, you quoted the Minister for Health (Wednesday 7th September) as saying that she would investigate innovative ways to get the hospital in place quickly and that there is a lot of interest in the provision of healthcare facilities. Is this Harneyspeak for the provision of tax incentives to investors to build and operate the new hospital with all its implications for costs, prices, standards, ethics and access?

It is time for our socially-conscious Taoiseach and opposition parties to put a stop to this creeping privatisation which is unwanted and unnecessary. If replacement of Crumlin is so urgent, why were public funds not released years ago as sought by the Pollack Report, New Crumlin Hospital Group and many others.

Co-located Hospitals

| No TrackBacks

May I add my voice to concerns about evolving health sector strategies.

Why is the State offering extraordinary returns to investors in the health sector when it can easily raise the finance at less than 3% per annum? How can the Government justify subsidies of up to 47% by way of tax breaks to investors in hospitals and, on top, having to make annual payments to these investors to cover rents, fees, dividends, interest and profits? It is nonsense for investors to suggest that the State would gain from the resultant PAYE and VAT as it would be getting these if it financed the hospitals in the first instance.

By any standards, Ireland already have an inequitable two-tier health system and the Minister of Health's current policies will result in a fragmented and highly discriminatory three-tier system. What is really needed is an uncomplicated single-tier system where care is based on need rather than capacity to pay. The Government has no mandate to develop a "for profit"  health service and opposition parties should, ahead of the next election, pledge to roll back all measures aimed at  privatising key health services. They could also usefully address the need to convert the VHI into the a form of compulsory health insurance for all and let a much diminished private insurance industry concentrate on the private healthcare sector.

The Minister's plan to transfer beds from public to private hospitals is akin to re-arranging deck chairs on the Titanic except that in this case they are being moved from steerage up to first-class. This measure is being presented as progress but it is, in reality, privatising and cherry-picking by the side door.

Instead of pursuing this zero-sum game, the Minister of Health, her department and HSE should review why  Ireland's health spend (as a % of Gross National Income) has risen above the EU average notwithstanding that the proportion of our population aged 65+ is only two-thirds the EU average. Is this because we are more prone to sickness and accidents than our EU counterparts (e.g. drink- and traffic-related), or because we get bad value from existing services (overpayment and underperformance), or because resources are mismanaged (too many administrators and offices and too few doctors and beds)? Findings and needs, not ideologies, should govern strategies aimed increasing rather than reducing equity.

This letter was published in the Irish Times on 24th August 2005.

The Cost of Infrastructure

| No TrackBacks
Why is the State offering extraordinary returns to investors in infrastructure when it can raise finance at about 3% per annum? How can the Government justify subsidies of up to 47% by way of tax breaks to investors without securing some immediate ownership rights and, in some cases, being obliged to also pay ongoing surcharges to cover rents, fees, dividends and profits for the very same investors? It is nonsense to suggest that the State would gain from the resultant PAYE and VAT paid as it would be getting these if it financed the investment. 

At a time of steady economic growth and unprecedented low interest rates, most property-related tax incentives are completely unnecessary other than for the purpose of competing with other such schemes. Virtually no schemes were adequately costed at the outset and, even after years of operation, their costs and benefits are only now coming under investigation. A classic example of handing out large amounts of tax payers money and failing to apply any management and control.

These tax schemes are a throw back to the days of double-digit inflation, interest and unemployment rates and have no role today given the buoyancy of Exchequer returns and low public sector borrowing.  Surely, the simplest solution is to abandon all schemes so as to level the playing pitch for all investment types and stop further hemorrhaging of tax payers money. Only in truly exceptional cases should schemes be revived after full investigation. If needs be, funds could be secured by diverting some of the billion euro a year paid to the National Pensions Reserve Fund for investment in overseas infrastructure and industries. However, cynics may say that this is untouchable as it  is primarily designed to help finance the unsustainable pensions of public servants and politicians.

PAYE Discrimination

| No TrackBacks

As a proprietary director of a company, my entire salary goes through the PAYE system. Recently, when submitting my tax return for 2002, I used Form 12 which is for company directors who pay their tax liabilities through PAYE. Why am I, and many thousands of other salaried directors, ineligible for the annual PAYE tax credit of €660 ? This discrimination which should be addressed in the forthcoming budget.

Letter published in the Sunday Business Post on 23rd November 2003.

Monthly Archives

Powered by Movable Type 4.38

About this Archive

This page is an archive of recent entries in the Taxation category.

Road Tolling is the previous category.

Traffic is the next category.

Find recent content on the main index or look in the archives to find all content.

Top of Page